Bond Market Association (BMA) swaps are a common debt management tool. A BMA swap is an interest rate exchange in which the parties agree to trade interest payments on debt obligations. Generally, one party pays a fixed interest rate and receives floating-rate interest payments based on the BMA's floating-rate municipal swap index. The other party to the swap receives fixed interest payments and pays the floating rate. In some cases, these swaps are used by investors for hedging.
The Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index, produced by Municipal Market Data (MMD), is a 7-day high-grade market index comprised of tax-exempt Variable Rate Demand Obligations (VRDOs). As noted above, one of the elements of a swap transaction is the index on which the floating rate is based. The SIFMA Municipal Swap Index commonly serves as the benchmark floating rate in swap transactions.